I got a call yesterday that made me smile. A friend of mine explained that they are now earning more than they need to pay their bills, and they wanted my advice on what to tackle next. I LOVE THOSE KINDS OF CONVERSATIONS! It was fun. It also gave me this post idea – if you are finally earning more than you need, what should you consider?
Extra Money Options
If you are already covering your bills, have paid off your high interest debt like credit cards, and are ready to go to the next level, here are the things you could think about next! Be excited – this is the fun part!
- Emergency Fund – I would suggest having enough cash on hand at any point to be able to pay at least 3 months of your expenses. At the very least, keep enough on hand to pay for your out-of-pocket health insurance expenses. That way, if you are in an accident, you will have enough to cover your part without scrambling.
- 401k – If your employer will match a certain percentage of contributions to your 401k, make sure to contribute at least that much. It’s free money and pre-tax income! Take advantage of the benefit! 🙂
- IRA – If you don’t have a 401k, you could contribute pre-tax income to a regular IRA instead.
- Roth IRA – Once you have padding and have grabbed your free money, consider contributing post-tax income to a Roth IRA. When you reach retirement age, you can take out taxable withdrawals from your 401k up to the limit of the lowest tax bracket, and then polish off the rest with non-taxable withdrawals from your Roth IRA. It’s an excellent way to ensure that you stay within the lowest tax bracket in your golden years even if you live above the threshold.
- Life Insurance – You can usually get cheap life insurance through your employer. It won’t move with you from job to job, but it’s generally a cheap way to get coverage.
- Short Term Disability Insurance – This can cover some percentage of your paycheck for the time right after you are disabled. It’s great for temporary emergencies. This is also generally cheaper through an employer.
- Long Term Disability Insurance – This can cover some percentage of your paycheck for longer terms if necessary. This is OMG-this-sucks coverage. This is also generally cheaper through an employer.
- Health Savings Account – This is another great way to put away pre-tax income to cover medical expenses. Want to hear the great news? HSA’s move with you from job to job! You don’t just lose your contributions. 🙂
- Flexible Spending Account – This is also a tax-advantaged account for medical expenses, but the amounts contributed don’t roll over from year to year. Be careful to only contribute what you know will use.
- Pay Off Debts Faster – If you still have low interest debt like student loans, car loans, and/or mortgages, you could use some of your extra income to pay them off faster. 🙂
What else would you suggest for someone dipping their feet into new-money waters?
Pic from http://www.theco.co/
FYI: I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year. I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home. If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!). Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!